Gold, silver, pgms, mining and geopolitical comment and news

I recently attended Metals Focus’ launch of its latest publication on Precious Metals Investment and while its overall conclusions were somewhat mainstream the group’s analysts are looking for the gold price to AVERAGE US$1,400 next year which suggests at times spot prices will go higher than this. I published an article on this on the Sharps Pixley website on this which is set out below:

Metals Focus still sees gold hitting $1,400 average in 2018

Yesterday saw the launch of London-based precious metals consultancy Metals Focus’ second annual Precious Metals Investment Focus publication which, in its 90+ pages, goes into considerable detail on the current prospects for gold, silver, platinum and palladium. The consultancy also yesterday published its latest Precious Metals Weekly newsletter, which emphasised some of the findings of the longer report and, perhaps, what it sees as the potentialimpact of the increased likelihood of a U.S. Fed small interest rate rise at its December meeting. However some others – notably Jim Rickards in a recent interview – would disagree feeling that the most recent U.S. economic data would scare the Fed into delaying any further rate increases into 2018, if then.

Metals Focus has a dedicated team of analysts looking at all aspects of the Precious Metals sector – and also nowadays provides the statistical element of the World Gold Council’s regular quarterly analysis of global gold supply and demand. The group was initially put together as a break-away from the longstanding GFMS analytical group when the latter was acquired by Thomson Reuters in 2011 and a number of its analytical team previously worked for the latter and some of the methodology of its analysis mirrors that of GFMS, although the conclusions do sometimes differ slightly.

Looking at gold as the prime driver of the precious metals complex – although increasingly the other precious metals are to a major extent dependent on their demand as industrial metals particularly in the case of the platinum group (pgms) – the report does see potential for further positive price growth given the supporting underlying macroeconomic and geopolitical outlook.

In his presentation at the launch of this latest publication, Neil Meader, the group’s Research and Consultancy Manager, reflected on a slightly disappointing performance for the complex, despite great promise earlier in the year. The report thus suggests only a 2% average rise in the metal price this year compared with 2016. An earlier 5 year analysis of the precious metals complex by the consultancy had predicted $1,400 gold this year, and while this has not been totally ruled out, the latest analysis suggests that this price level may now not happen until next year unless some worrying geopolitical event (North Korea looks to be the most likely instigator) causes the metal price to spike again.

Writing here a week or so ago, we had suggested keeping a close eye on the largest gold ETF (GLD) to see the trend in institutional investment in gold in North America, which seems to be a great indicator of U.S. investment demand and thus of the overall trend in the global gold price level. After a strong couple of months, the past two days have seen 10.35 tonnes withdrawn from the ETF which is perhaps indicative of weak institutional demand for gold in the light of the recent price falls, although much of these can be put down to some recovery in the dollar index over the past few days.

In today’s trading gold is, so far, up a few dollars from yesterday’s low point although has not retained some of its earlier price gains seeing a degree of profit taking (or an engineered decline depending on who one believes) after it moved briefly back above $1,280. Silver is pretty flat while platinum and palladium are trading at broadly similar levels after the latter’s high flying move of last week. In later trading palladium again moved slightly ahead of platinum, although not significantly so. Thus so far this week platinum has moved up a little and palladium down a little more. Metals Focus favours platinum over palladium into next year. We may disagree given the latter’s better current fundamentals but all the North American precious metals markets are managed by the big money to a greater or lesser extent and, ultimately the markets each tend to move in the way the bullion banks and major institutions determine as the prime players in these market.

What the Metals Focus Investment Focus publication does do is set out its price forecasts in the light of what it sees as the supply/demand parameters for the current year and next. For gold it sees a surplus, albeit a slightly smaller one of 22 tonnes in 2018 and an average price for that year of $1,400 as against a $1,275 average for the current year, itself up from $1,251 in 2016.

Silver is seen as outperforming gold next year, as it usually does in a rising gold market and again sees a supply surplus of 72 tonnes this year and 66 tonnes in 2018. The consultancy analysts see silver, like gold, benefiting from a recovery in investor interest in safe haven assets. Here the analysts are looking for a $20.60 average price for the year which some may see as optimistic, but if you are a silver investor optimism usually rules.

The analysts also see some kind of recovery in platinum, despite a 450 million ounce projected surplus. leading to an average price of $1,090 in 2018 – due largely to platinum’s historic correlation with the gold price. However it sees palladium as underperforming its fellow pgm despite a 1.44 million ounce projected deficit and are predicting an average price of only $880 an ounce. That is around $30-40 below where it is at the moment, although the 2017 average price is seen as only $830 an ounce. We would probably disagree here with, in our view, palladium having the distinct possibility of maintaining a premium over platinum given the disparities in fundamentals supply/demand data.